As marketplace lenders continually look for ways to improve the efficiency of their underwriting and assessment processes, the co-founder of one of the most successful platforms insists those improvements do not have to come at the expense of being thorough.
Kathryn Petralia is a featured speaker at Crowdnetic’s 2015 Crowdfinance Conference, taking place in New York City on Sept. 28.
Ms. Petralia said Kabbage has a unique beginning. Back in 2007 she and Co-Founder Rob Frowhein were discussing how they could use the new eBay application programming interface.
While eBay was using it to identify counterfeit and fraudulent items, the pair saw it having use in underwriting loans for small businesses.
“It generated such rich data,” Ms. Petralia recalled.
Kabbage began providing loans to eBay sellers in 2009 before introducing their first portfolio in 2011.
“Then we expanded in concentric circles and included Amazon, Etsy and Yahoo,” Ms. Petralia said.
Now Kabbage is working with more brick and mortar lenders than online sellers, though the latter still represents a significant portion of their clientele, Ms. Petralia explained.
Whichever sphere a new client operates in, Kabbage’s focus remains the same, she stated, and that is to provide the same user experience of obtaining access to capital in less than 10 minutes.
That combination of expediency and effectiveness is Kabbage’s calling card, for they use the same data as the banks, Ms. Petralia said. Kabbage gains the edge in their superior ability to automate it.
That ability includes accessing many different attributes and data points which combine to produce a unique score that goes deeper than FICO, a score which reflects everything from a borrower’s revenue growth to the (in some cases) seasonal nature of that revenue.
Kabbage’s relationship with each borrower remains current, Ms. Petralia explained. They can obtain real-time access to a company’s accounting platform, its shipping data, and, beginning in 2012, its social data from company social media accounts.
A company’s social media accounts provide current data because they tend to be very active.
“If you think raising money now is hard, 2009 was even worse.” – Kathryn Petralia
“Customers are using Facebook to communicate with companies,” Ms. Petralia explained.
Is there a tenuous balance between leaning too far toward speed at the expense of being thorough?
“The two are not mutually exclusive,” Ms. Petralia explained. “We can be more thorough and faster because we are using machines.”
“Humans are more fallible.”
With Kabbage’s beginning coinciding with the recession, they could not help but be influenced by it.
“If you think raising money now is hard, 2009 was even worse,” Ms. Petralia offered. “Raising money for a small business lending and technology-based company was hard.”
“We learned small business lending has been a need since the dawn of time. The joke is it is the second-oldest profession.”
Ms. Petralia added that companies need to both prepare for and learn from the inevitable down cycles. From Kabbage’s perspective that includes properly collecting and interpreting the data from those periods so they can help borrower performance improve during the next one.
Kabbage was determined to create a way to effectively manage risk while delivering a great customer experience, Ms. Petralia said.
Part of that quality experience involves delivering a product that adjusts with a company’s fortunes. Borrowers only pay for what they access, Ms. Petralia explained.
Ms. Petralia obviously sees an important role for marketplace lending in the economy moving forward, but that future will likely see a strong big bank presence too, as those established players have a low cost of capital, existing customer relationships, and access to plenty of data.
Kabbage has relationships with many big banks, who employ their technology. They continue to pursue such relationships in Europe and Australia.
“It will be Kabbage technology, but it is happening at a bank.”
That will help banks retain customers instead of referring them to third parties, a unique quirk enacted by governments like the United Kingdom, which mandated that banks turning down loan applicants must refer them to alternative lenders. Other countries are considering similar measures.
“Being referred elsewhere is not the best experience for the customer of a bank.”